Kumar further says despite many headwinds, the deposit costs remain between 6% and 6.10% and they continue to maintain a very healthy LCR of 125%.
The growth in your operating profits remain strong this quarter on account of the lower cost to income ratio and specifically the employee cost and other expenses were almost flat on an YoY basis. Is there any one-off impact? What led to this phenomenon and will the cost to income fall even further going ahead?
Prashant Kumar: If you see operating profit continuously improving – 25% this time as well and this is on account of non-interest income (NII), and a very tight control on the cost side. We have also seen improvement in the cost to income ratio which has actually come down from almost 76% for Q4 of last financial year to 67% for the current year. We would continue to see this trajectory. There is no one-off. This is more in terms of a very focused attention in terms of cost and also in terms of increasing the income.
Do you have any target range in mind for cost to income in the coming quarters?
Prashant Kumar: It would continue to be on a downward journey and we would like to see if it can happen in the early 60s by the end of the current financial year.
But your loan book growth remained soft this quarter. Was it a conscious call to slow down your loan growth in some of the segments? What are the key strategies to achieve that 12% to 15% growth rate?
Prashant Kumar: Basically, the loan growth is coming from four different segments. One is the large corporates which are growing around 12%, the other segment is the mid market companies which are growing between 20% to 25% continuously. The third segment is the SME which is also growing 20-25%. The fourth segment, which is almost 41% of our loan book, is retail loan. There was a calibrated call to slow it down in the current financial year.
But now, after taking all kinds of measures in terms of strengthening, risk underwriting, and also in improving the collection, there was a calibrated call to go only for those retail asset products which are profitable. We are quite confident that in FY26, even retail would be growing between 10% and 12%. So, with the combination of these four different segments, the bank would be in a position to achieve a loan growth of 12-15%.
Do you see any risk to the asset quality of the bank specifically from the retail or any other segments going ahead?
Prashant Kumar: The issue on the retail side started happening somewhere in the FY24 itself and which are not only confined to us, rather was across the banking industry. But the good news is that it has stabilised and if we see Q4, the slippages have started coming down. The retail slippages have come down by 40 basis points and we are seeing a similar trend in behaviour during the current month also.
We are quite confident that whatever was the issue on the retail side for the last 18 months has not only been contained, and now it has started coming down.
What was the deposit growth outlook because the deposit growth rate was soft for the banks versus the peers and also the banking system overall. Now with rate cuts and improving liquidity, some banks are suggesting a strong deposit growth along with the improvement in the CASA in the coming quarters. What could be in store for Yes Bank? What is the outlook?
Prashant Kumar: The deposit growth which we are seeing is the published deposit growth of almost 6.8%. This is more of a year-end phenomenon. On the deposit side, we have achieved 16% growth on the average, where the current account was more than 20% and savings bank was more than 32%.
Basically, this number is more in terms of a year-end phenomenon because in FY24 March, we have seen abnormal growth on the deposit side, but on the average, our deposit growth has been extremely good and that is why we have been able to contain our cost of deposit. That is why despite so many headwinds, our deposit costs remain between 6% and 6.10% and we continue to maintain a very healthy LCR of 125%.Also, NIMs have remained fairly stable in FY25 versus FY24. The cost of funds have remained at around 6.1% although you did mention that the PSL related deposits will go down below 5%. What is the path going ahead when it comes to the cost of funds, how are you planning to manage to improve your NIMs?
Prashant Kumar: On Friday, our asset-liability committee met and a decision was taken to reduce the rates on the savings bank and also on the peak fixed deposits. We have taken those steps where the cost of deposit in the current financial year would come down and in terms of RIDF deposits are also coming down from 11% to 8.7% and in next two years it would come down to less than 5%. So, any negative impact because of the lower yields on the RIDF would help us in improving our NIMs.
With the RBI cutting interest rates, there are expectations of a further 50 bps rate cut. How sensitive is your loan book growth? What portion of the loans are EBLR, repo linked, and how are you planning to mitigate the NIMs compression?
Prashant Kumar: This is exactly the issue which the entire industry is facing. For us, almost 60% of our loan book is on the variable rate whether it is linked to the repo or the T-bill. Another say around 30% would be the fixed rate and less than 10% would be on the MCLR. So, whenever there is a rate cut from the RBI, it has an impact in terms of yields on our advances but that would be offset by reducing the cost of the deposits which not only us, but so many other players have already taken a decision to reduce as well.
You also mentioned about the ROA target of 1% in the coming quarters; that is a 30 bps expansion from the current levels. What will be the key levers for ROA expansion?
Prashant Kumar: I have mentioned that we continue to stick to our guidance of 1% ROA for the FY27, but we are also confident that in the current financial year when we are exiting in the fourth quarter of the FY26, we would be targeting a 1% ROA and this would be mainly coming from by improvement in the margins which would be a function of the NII, non-interest income, and the control on the cost side.
But also, credit cost is continuously coming down and that would help us in terms of achieving our restricted goal of 1% ROA in the next two financial years and exiting the current financial year in the fourth quarter with a 1% ROA.
